Thu, Dec 01, 2011 - Page 10 News List

American Airlines files for bankruptcy, flights will continue

AP, DALLAS

The parent company of American Airlines Inc filed for bankruptcy protection on Tuesday, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago.

The company also replaced its CEO and the incoming leader said American would probably cut its flight schedule “modestly,” while it reorganizes. The new CEO, Thomas Horton, did not give specifics.

For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.

In announcing the bankruptcy filing, AMR Corp, which owns American, said that Gerard Arpey, 53, a veteran of the company for almost three decades and CEO since 2003, had retired and was replaced by Horton, 50, the company president.

Horton said the board of directors unanimously decided on Monday night to file for bankruptcy. In a filing with US federal bankruptcy court in New York, AMR said it had US$29.6 billion in debt and US$24.7 billion in assets.

In hearing in a packed bankruptcy courtroom on Tuesday in New York, a judge granted the airline permission to pay for fuel, labor and other critical expenses to keep it flying.

With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers a day.

AMR’s move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways Inc to move closer to United Continental Holdings Inc and Delta Air Lines Inc in size. Such a merger would leave five large US airlines compared with nine in 2008. US Airways declined to comment.

ARM had already lost 79 percent of its market value this year on fears of bankruptcy. The stock fell to US$0.26 cents Tuesday, down US$1.36 from the day before. In January 2007, after a four-year rally, the shares peaked at US$41.

AMR has lost more than US$12 billion since 2001 and analysts expect it will post more losses through next year. Speculation about an AMR bankruptcy grew in recent weeks as the company was unable to win union approval for contracts that would reduce labor costs.

The company said it was spending US$600 million more a year than other airlines because of labor-contract rules — US$800 million more including pension obligations.

On Tuesday, Horton said no single factor led to the bankruptcy filing. He said the company needed to cut costs because of the weak global economy, a credit downgrade that raised borrowing costs and high, volatile fuel prices. The price of jet fuel has risen more than 60 percent in the past five years.

American was founded in 1930 from the combination of many smaller airlines. News of the bankruptcy swept through AMR’s hometown, Fort Worth, Texas.

“American Airlines is an institution in Dallas-Fort Worth and when institutions start to crumble you look at everything around you,” said Elaine Vale, a jewelry store owner who flew back from a US Thanksgiving holiday on American. “After American, then who?”

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